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Various firms hire the services of a Professional Employer Organization (PEO), which is a firm that offers cost-effective outsourcing solutions. The functions that are handled by the PEO are employee benefits, payroll and workers’ compensation, recruiting, risk/safety management, and training and development. The PEO achieves this by hiring the client’s employees and would be the “employer of record” for tax and insurance purposes. This is also referred to as “co-employment”. Usually, people seek clarity on who the actual employer is and if PEO is an administrator who would take a call on the employee’s eligibility for insurance. Below are a few questions that have been answered regarding PEO: A Texas-based company uses the services of a PEO. An employee was fired within two months of being hired. This employee wants to know the impact on his/her commissions due to the lack of a structured payout plan.
Texas is an at-will employment state where one may be fired at any given point of time and for any reason. However, the employer may not fire an employee because of illegal discrimination or by breaching the employment contract or company policy. An employee is entitled to receive payment as per the employment contract and should be informed if there would be any alteration to the wages that would be paid. With regards to commissions, the employer would decide when and how the commission would be paid though there might be a written commission plan. However, the employer should be transparent enough so that the employee is aware that the payments are being made correctly. In the scenario mentioned above, it does not seem that the plan was defined. Therefore, the Texas Workforce Commission may not register the wage claim. The option that one may have is to file a law suit under the Texas wage laws or for violation of contract. The PEO is not a registered entity in the state where the business will be carried on. Would a client service agreement with such a PEO be binding?
It is not required for businesses to be registered in the state. However, one would need to abide by the terms of the contract as it would be legally enforceable. In case of breach of terms of the contract, a law suit may be filed. An employee would wish to know if the PEO is only an administrator of employment and the company a legal employer.
For a PEO to be considered as a legal employer, the PEO would need to direct the workflow. However, if the PEO is hired only to take care of the human resource functions and the company itself directs the workflow; then the company would be the legal employer. If the employer of record in reflected incorrectly on the credit report; then one may need to contact the credit bureaus directly to get this rectified. Who would decide on the eligibility of an employees’ COBRA coverage if a small business is contracted with a PEO?
It would be the small business that would decide if an employee is eligible for COBRA coverage or not. COBRA coverage may be active for a minimum period of 18 months post the employee’s termination. If a PEO is contracted with various companies for providing service; would it be legal if they give varied health plans for employees of different companies?
It is up to the company to decide what the terms and policies would be. Each company would have its own requirements and are different entities altogether. Therefore, it is perfectly legal for the PEO to offer varied health plans to different companies. It would be better for one to know the terms of the employment contract if the company has outsourced some functions to a PEO. If you are not sure of the law in this regard, you can ask an employment lawyer to answer any questions you may have.
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